Financiers rev up as auto shifts gears

Interest rates may be heading northward, but a booming domestic automobile industry has heated up the vehicle financing segment. More financiers are set to make an entry, while older players, which had pruned their exposure, are planning to spruce up their act.

UTI Bank is gearing up to finance the purchase of automobiles even as ABN Amro and Citi, which had slashed their auto loan disbursements, are revamping their businesses. StanChart is also watching from the sidelines as the existing players look at racheting up their growth.

Interest rates in the car loan market have risen by close to 250-300 basis points or close to 3% in the last one year. Last week, some of these bank financiers hiked rates by 50 bps. Margins in the industry had turned negative during the last calendar year due to high fund costs, though this was not passed on to consumers. Now, with the cost of lending on the ascent, and margins turning positive with financiers passing on higher costs to buyers, banks are reviewing their business strategies.

UTI Bank used to provide car loans only to its own customers. The bank is now looking at a customer base outside this circle, hoping to clock disbursements of Rs 200 crore.

ABN Amro, Citi and StanChart had cut disbursements drastically and had more or less restricted loans to their own customers. ABN Amro is in the process of re-entering the business and is looking at a three-fold hike in disbursements over the next six months. The bank, which has been offering car loans only through the branch network, will tap the dealer network of direct selling agents (DSA).

“We will look at selective DSAs in top cities where we think we can give the right value for our customers. The payouts in DSAs have been rationalised,” says Sumant Kathpalia, executive director and head, consumer banking, ABN Amro Bank.

StanChart, which had sold its auto loan portfolio to ICICI Bank, may re-enter the market this year. “We review our stance every three-four months. For a re-entry, market conditions have to change,” said MN Murali, regional head, consumer banking, StanChart. ICICI Bank, the largest player in the market, seems to have changed its stance in the past few months. It has lowered its growth in disbursements and seems to be focusing more on profit rather than market share. At present the bank disburses new car loans aggregating Rs 1,300 crore per month. However, its market share has slipped to 38% from close to 42%.

HDFC Bank, the second-largest player in the auto loan segment, had cut its new car financing business last year in March when margins dropped to all-time lows. However, in the past few months, it has started scaling up disbursements to close to Rs 700 crore, including financing of used cars to the tune of Rs 140 crore. It is looking at increasing disbursements and maintaining its No 2 position. The market share of the bank, which was close to 15-16% last year, is said to be at around 21%.

Kotak Mahindra Bank, another player in the industry, saw its disbursements rising from around Rs 150 crore to Rs 200-250 crore.Smaller towns and cities are emerging as important growth centres. “The contribution of top 30 cities, which was at around 75% 18 months back, has come down to 65%. The industry is moving towards tertiary towns. Availability of finance, increasing range of cars and distribution of manufacturers along with the rise in disposable income have caused this change,” says Ravi Narayanan, head of car and commercial vehicle loans, ICICI Bank.

He also points out that around 30% of customers are new with the remaining going in for upgrades. This is against 70% new customers in markets like China. There also seems to be a north-south divide in the auto loan market. “Southern markets have become torch-bearers in recent times. Cities like Hyderabad, Bangalore, Vizag, Kochi and Chennai have shown a sharp rise. There is a lot of potential in this market,” says Ashok Khanna, EVP, HDFC Bank.